Friday, May 29, 2015

Don't start a competing business using your boss's equipment

Defendants Rigole and LePage were Nedschroef employees in
Detroit who formed a competing company, Bemas, while still working for Nedschroef.
Nedschroef makes industrial machines that produce metal fasteners, such as
nuts, bolts, and screws, and the Detroit operation provided service and replacement
parts for US customers.Rigole was the
highest ranking Nedschroef employee in North America, while LePage was a
project and service engineer.Both
possessed significant authority and access to proprietary information.

In late 2010/early 2011, the Nedschroef Detroit employees
were told that the Detroit operation would be closed unless business improved,
and employees received a pay cut.Rigole
and LePage, using the names of their significant others, formed Bemas a few
months later.While the individual
defendants were still employed by Nedschroef, Bemas sold replacement parts for
Nedschroef machines and serviced Nedschroef machines.Nedschroef presented evidence that they copied
proprietary drawings of replacement parts (rather than reverse engineering from
the parts), though defendants denied this, and also denied obtaining a customer
list from Nedschroef’s private server, claiming instead that Rigole learned
their names from his years working at Nedschroef.They said that, when people contacted them in
their capacity as Nedschroef employees and said that Nedschroef’s price was too
high or delivery time too long, they’d tell customers about Bemas and provide a
quote.Though they maintained that they
had little control over Nedschroef pricing, which was set at the corporate
level in Belgium, they had access to Nedschroef’s price list. Amost all of
Bemas’ customers were first customers of Nedschroef, and almost all of the
goods and services offered by Bemas were offered by Nedschroef.

Nedschroef further alleged that defendants used Nedschroef’s
employees, equipment, warehouse and other resources to run Bemas and compete
against Nedschroef. For the first two and a half years of Bemas’ existence,
Rigole and LePage conducted the company’s business while employed by Nedschroef
and using their Nedschroef-owned computers. Suppliers shipped parts to Bemas at
Nedschroef’s warehouse, where Bemas would use Nedschroef’s forklift to unload
the goods and then ship them to Bemas’ customers. Nedschroef alleged that this caused
consumer confusion, such as an email in which Rigole discussed an order with a supplier
and said “please do not send emails concerning Bemas to my Nedschroef email
address,” getting the response “[the order] is a Nedschroef order, is it not?
Greg quoted this to Nedschroef and I assumed this is who we sold it too [sic],
so [the order] is for Bemas?” Another person sent a “Nedschroef Order” to
Bemas, and other suppliers appeared confused.

The court easily found misappropriation of corporate
opportunities and breach of fiduciary duty and the duty of loyalty, as well as
misappropriation of trade secrets (even if defendants’ version of events was
true, they got proprietary drawings from Nedschroef customers who received them
from Rigole and LePage; the defendants knew that the drawings shouldn’t have
been given to customers except in “exceptional circumstances” after
consultation with Belgium). The evidence
also established conversion of the drawings and other property used to compete
directly against Nedschroef.Nedschroef
also won on unjust enrichment and civil conspiracy.

Interestingly, the court found no false designation of
origin/false advertising under the Lanham Act because defendants didn’t use any
“false designation of origin, false or misleading description of fact, or false
or misleading representation of fact.” Any confusion was due to the individual
defendants’ dual roles as representatives of Nedschroef and Bemas. The Michigan Consumer Protection Act claims failed
because it requires a consumer transaction, and these were business
transactions.

However, the district court found common-law unfair
competition because of the likelihood of confusion. The parties sold the exact
same goods/services and the same marketing channels (that is, Rigole and
LePage), and defendants’ conduct caused actual confusion among suppliers, which
allowed an inference of likely confusion among buyers.(Hmm, price and sophistication would seem to
cut against that for the consumers, but ok.)

Finally, the court found tortious interference with
prospective economic advantage despite defendants’ arguments that Bemas only
provided parts for and/or serviced Nedschroef machines if customers previously
requested a quote for the same part or service from Nedschroef and rejected the
quote. But before Rigole and LePage formed Bemas, there was only one source in
North America for the majority of the parts needed for Nedschroef machines:
Nedschroef. Without an alternative, the customer would have had to purchase the
parts from Nedschroef Detroit at the price quoted or go without the part. “Presumably
the latter option was not a realistic one where the customer relies on the
parts to operate their Nedschroef machine.”

The defendants were permanently enjoined from further unfair competition to
sell Nedschroef parts or services because
their conduct, the court found, “caused a loss of goodwill and competitive
market position … which courts have recognized cannot be fully compensable by
monetary damages.” Nedschroef doesn’t have a huge market share, so an
injunction precluding defendants from providing replacement parts for
Nedschroef machines left substantial legitimate business for them to seek.

Nedschroef also was entitled to the return of compensation
paid to the individual defendants, to Bemas’ profits from their breach of
fiduciary duties, and treble damages plus costs and attorney’s fees from the
conversion. [How are the damages from the conversion, as opposed to the other
conduct, going to be measured?]

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